CoastHills Converts to a State Charter

CoastHills Federal Credit Union members approved converting their cooperative to a state charter Tuesday after it failed to secure field of membership expansion approval from the NCUA.

President/CEO Jeffrey York said he found the process a bit frustrating.

“We know we can’t stay at our current size and continue to make a difference,” said York, who leads the $740 million, Lompoc,-Calif.-based credit union that serves more than 58,000 members.

By a vote of 844 to 461, members approved the charter change that comes with a one-time $400,000 conversion cost. As a new state-chartered credit, CoastHills also will be required to pay California’s 7.5% state sales tax.

York said the credit union wanted to keep its federal charter and never had issues with it until it started looking at expanding its FOM about a year ago.

The state charter will allow CoastHills FCU to grow its FOM from its current markets of northern Santa Barbara County and San Luis Obispo County to all of Santa Barbara County as well as Ventura, Monterey and Santa Cruz counties.

“When you look at credit unions with a billion dollars or more in assets, they typically have lower efficiency ratios – meaning they are more efficient – and we need to get to that point,” he said. “There are towns where we have 40% penetration in our current field of membership. It’s not going to get any better than that. So we need grow and expand to compete with local banks and large banks.”

The credit union’s FOM expansion request was denied because it would have stretched the credit union beyond its metropolitan statistical area.

That is not allowed under the regulations, NCUA Public Affairs Specialist John Fairbanks said.

York, who understood NCUA’s decision, also said he followed up with an application for a rural district designation.

Fairbanks, however, said there was no formal request from CoastHills for a rural district designation, which has to meet certain requirements for population and population density.

“I can tell you that we submitted a request in writing to NCUA on a rural charter along with our calculation and was given the thumbs down on the phone and in writing,” York said.

The current definition to qualify for a rural designation sets the maximum population of a rural district at 250,000 or 3% of the population of the state in which the majority of the district is located, whichever is greater. Although the area CoastHills was considering serving would have met the population threshold because California is a large state, the area would not have met the regulatory requirement of having a low population density, according to NCUA.

As far as the population density calculation goes, however, Santa Barbara County officially includes the body of water between the main land and the Channel Islands, which is approximately 3,700-square miles, according to York.

“The (U.S.) Census Bureau does not consider the water in their population density calculation knocking off approximately 1,000 square miles, so NCUA would not either,” he said. “If the water area (were) an uninhabitable mountain instead of water, it would have (been) counted, at least in my argument.”

CoastHills FCU also considered changing to an associational or multiple SEG charter.

“We have been a community credit union for almost 20 years, so that would have been a little more difficult for us, and I don’t know what the implications would have been for our current membership,” York said. “We are all about the community. That is how we set up our vision and our core values.”

In the end, York added, all of the stakeholders, including members, communities and employees, will benefit from the credit union’s state charter.